Pa. taps British firm to run $3.5B state lottery

(AP) Camelot Global Services, the British national lottery operator, is poised to take over management of the Pennsylvania Lottery after Gov. Tom Corbett's administration said Friday that it had awarded a contract to the company in a deal that pledges $34 billion in profits to the state over the next 20 years.

Pennsylvania, whose lottery is among the country's largest with $3.5 billion in sales last year, is on track to become the third state, after Indiana and Illinois, to hire a private lottery manager.

We're confident that by combining one of the nation's best lotteries with one of the best private-sector lottery industry experts in the world, we'll end up with a win-win proposition to grow and protect Lottery profits for decades to come, the state's Secretary of Revenue Dan Meuser told lottery employees in an email message obtained by The Associated Press.

The administration's drive to hire Camelot has drawn strong opposition from unions, Democratic lawmakers and even some anti-gambling Republican lawmakers.

Camelot, which was the sole bidder for the contract, can charge a management fee worth hundreds of millions of dollars over the life of the deal, but it insists its only profit will come from built-in cash incentives to exceed its annual profit commitments.

Administration officials have maintained that Camelot's commitment is a stronger and more stable source of revenue than state employees could deliver as the state eyes growing demand for state services for the elderly that are underwritten by the lottery.

Camelot's plans include introducing keno to bars and restaurants, creating online access to games and changing marketing strategies to capture a broader spectrum of lottery players, particularly those in higher income households. The state would retain rights to control, inspect and audit the lottery and some of Camelot's plans would still require state approval, the Corbett administration has said.

Bringing the process to a successful conclusion is a key test on privatization for Corbett, a Republican who promised when he ran for governor that he would look to privatize state services. Meanwhile, securing the contract gives Camelot its biggest footprint yet in the United States.

We are committed to make major investments in the lottery in its brand, in its operations and in its people, Camelot said in a statement Friday.

But challenges still await Camelot.

State Treasurer Rob McCord, a Democrat, and the labor union representing state lottery employees say Camelot is banking on an expansion of gambling they contend is not currently allowed by state law. McCord has threatened not to pay Camelot until he is satisfied that its plans to expand gambling are legal, and the union, Council 13 of the American Federation of State, County and Municipal Employees, has sued to block the contract.

David Fillman, the union's executive director, called it a bad deal for our seniors and said the current system could outperform Camelot's projections if employees were allowed the same gambling expansion the company proposes.

This is a midnight raid, Fillman said.

Democratic lawmakers questioned the wisdom of the move, saying the lottery is coming off a strong year and is on course to perform even better this year, and have criticized the secrecy of the deal. For instance, Camelot's business plan remains under wraps.

In his email to employees, Meuser told employees that the contract has been formally awarded, but it is not binding and Camelot cannot begin work until the contract receives final reviews and signatures required for execution. That is expected to happen next week, he wrote.

On Monday, Meuser, Camelot executives and representatives of the union and AARP are expected to testify on the matter before the state Senate Finance Committee.

The 41-year-old Pennsylvania Lottery recorded $3.5 billion in sales for the year that ended June 30 and contributed its more than $1 billion in profits to benefit programs for the elderly, including transit, rent and property tax rebates, prescription drug assistance, senior centers and long-term care services.

Camelot can win contract extensions of up to 10 years if it meets certain performance benchmarks. If Camelot were to fall short of an annual profit guarantee, the state could dip into a Camelot cash reserve to offset it, but only up to 5 percent of the annual profit.

As examples of its expertise, Camelot can point to rising sales at the lotteries in the United Kingdom and in California, where it is a consultant.